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I recently opened an office in Miami and I love it. It’s simple – just a common room and meeting room – but modern and right on the water. It has a large storage area at the entrance, which I first considered converting into another meeting room. But it had a strange electrical setup, so I asked my contractor about its history.
According to him, the space between the electrical work, air conditioning and security probably had been a crypto trading office. He was sure. Then I realized I had seen that setup before.
In Miami, crypto is everywhere, with servers running so much data that they need their own air conditioning. When FTX has collapsed, and the crypto market lost billions, Miami felt the impact. I knew many people – friends and business associates – who went from making so much money on paper to hurting now.
Luckily I managed to avoid it. Of course I was interested. A few people I knew made a lot of money from crypto, which made it tempting. Yet I could hear my father’s voice, singing along with that old chestnut, “when in doubt, don’t.”
These are the lessons I learned from this crypto collapse by following his sage advice.
Related: “I’m sorry. That is the most important.’ Sam Bankman-Fried and Cryptoworld Lose Big in FTX Meltdown, Company Files for Bankruptcy.
Count the doubts
I was never against the idea of crypto. Some of the fundamentals appeal to me: the blockchain creating supposed self-control rather than a Big Brother-esque federal banking agency. Just as Web 3.0 promises to prevent the Googles of the world from tracking our every digital move, crypto has its upsides.
But I was also wary of the negatives. While I personally knew many people in Miami who were involved in crypto, there were always plenty of people in my life who didn’t accept that I never fully understood how it could be traded at such high values. The process of paying out seemed too complicatedand it reminded me of the old “pump and dump“Stock trading scams.
I’ve also listened to Warren Buffett’s many doubts about the future of cryptocurrency and called it “rat poison squared”. His arguments made sense: apartments produce rent, land produces food, but crypto produces nothing tangible. If an expert like Buffett rejected all the bitcoin in the world at $25, a less experienced investor would certainly need to take stock of his doubts before making significant investments.
Related: Now That Crypto Has Crashed, What’s Next For The Metaverse?
Invest in what you know
Let’s compare crypto to AI: At first I was uncomfortable exploring both technologies because I didn’t fully understand them. As the AI trend grew into a direction the company inevitably took, I did my best to learn more about it. I found people who could give me clear explanations that made me understand the technology. Being able to understand it made it easier for me to confidently invest in it.
Crypto specialists, on the other hand, never came close to providing such clarity. Mining crypto is an abstract process, so I enlisted the best person I knew in the field to explain it to me. Even still, the details were vague and I probably wouldn’t be able to explain it to anyone else again. What I did understand was how much energy it took, which sounded crazy and unsustainable to me. Since that was my main takeaway, I decided not to invest.
crypto is infamous hard to understand. Still, without a complete picture of what they are buying, people are willing to invest. A 2021 survey of 750 investors found it that only 16.9% “fully understood” its value and potential, while 33.5% had “no knowledge” or a level of understanding they described as “emerging”. Many invested simply because it seemed popular and they feared missing out.
Believe me, I understand how easy it can be to hop on a train. I remember a new technology that was starting to take off – though I barely remember what it was – but it was so hot that a friend insisted I join it. So I did. Without even knowing what the company produced, I put money into it. I didn’t want to be left out of the next big thing. So what happened? I lost big. Luckily it wasn’t that much money, but it taught me never to invest in what I didn’t fully understand.
Related: 5 Ways to Overcome Today’s Investment Challenges
Pay attention to the people most involved
Something about Sam Bankman-Fried, founder and former CEO of FTX, has put me off from the start. To me, SBF had all the hallmarks of a scam artist. He was distribute financial aid among the most prominent political names and get the name of his company on top of the Miami Heat stadium. He entered an industry full of what I saw as so many doubts with too much money, swagger and confidence.
I may not know who used my office for crypto mining before I moved in, but I know someone did, and I wonder if they contributed to the increased rate of cyber-attacks, scams and bankruptcies. Bad characters have always been around — from the Northern carpetbaggers profiting from the war-torn South to the record holder of the Ponzi scheme, Bernie Madoff — but in crypto they seem to be plentiful. If you don’t feel comfortable with the people behind something, don’t invest in it.
Related: 7 things you should know before investing in cryptocurrencies
If there are risks everywhere, be more careful
If someone asks for guidance for a safe investment, I always recommend land. Nobody makes it anymore, and it is a tangible asset that, unlike stocks, we can use while it retains its value. However, land can still lose value or be damaged. A few weeks ago I was driving along the west coast of Florida, where so many people who had lost their homes were rebuilding after Hurricane Ian.
Everything comes with risk in one form or another, so if an investment seems extra risky from the start, we need to be even more careful with our decisions. Invest in understanding the fundamentals of a new technology first and take a more calculated risk. Learn as much as you can and write down any doubts throughout the process. If the doubts are all you understand at the end, you may need to rethink your investment.
This crash may not be the death of crypto, but the industry certainly has a rough time ahead. It will now be even harder to get people on the train, and the federal government will probably step up their efforts to get it under control. But it should be a big wake-up call for investors to be wary of technology allure. This crypto implosion won’t be the last to burn investors, but learning lessons from it will help us avoid this kind of massive damage next time.